The latest levy announced by the Financial Services Compensation Scheme has been met with anger by the Association of Mortgage Intermediaries.
The FSCS has forecast a levy of £1.04bn for its 2021/22 budget, to be confirmed in May, mainly because of an expected rise in compensation payouts in the pension advice and investment advice sectors and a 9 per cent rise in management costs.
This is an increase of £339m from the total £700m levy raised in 2020/21.
The total levy for home finance intermediation was £3m in 2020/21.
This is expected to rise to £22.9m for 2021/22, with own class levies at £5.8m and the retail pool levy set at £17.1m.
The FSCS originally forecast home finance intermediation claims to number 744 in 2020/21, which was then revised to 1,088 – a 46 per cent increase. The assumption for 2021/22 for number of claims is 1,247 – or a 68 per cent rise on the original figure.
It believes that compensation costs for the general insurance provision will rise from £158.7m to £233m and investment provision to increase from £182m to £344.7m.
Home finance intermediation compensation costs are expected to rise from £3.9m to £6.5m.
The Treasury’s asset management taskforce has meanwhile met to discuss the matter and confirmed that it will work with the Financial Conduct Authority to address rising cost concerns.
“In announcing that the FSCS needs to raise in excess of £1bn to make compensation claims we have reached a new low in the story of financial regulation in the UK,” says Ami chief executive Robert Sinclair.
He continues: “The dire discovery that the investment and pensions sector has been blind to widespread fraud and poor advice needs direct action by the industry.”
However, Sinclair adds, “asking mortgage brokers to pay more for bad pensions and investment advice than they are levied by the FCA for their own regulation is nothing short of a disgrace. The announcement of a Treasury Taskforce is too little and too late.
“On behalf of ordinary advisers who will have to find this money at a time when doing their job could not be harder, Ami requests that the review of future regulatory framework is expanded to look at how we develop a new approach that gives proper scrutiny of how firms are able to operate within the UK regulatory framework”.
FSCS chief executive Caroline Rainbird comments: “While the levy funds the compensation and services we provide, helps protect consumers, improves market stability and increases confidence in the finance sector, we appreciate that it is far too high and that increasing levy costs could put pressure on firms’ finances.
“I want to reassure you that we are doing everything in our power to reduce the levy which includes making recoveries from failed firms wherever possible and if cost-effective.”
